Quarterly Review of Global Financial Investments | July 2025
The Financial Conduct Authority (FCA) and HM Treasury have unveiled a new regulatory framework for UK private fund managers, designed to modernize, streamline, and strengthen oversight while maintaining essential protections for consumers and market integrity. This ambitious overhaul promises significant impacts on fund managers and the industry's future success.
One of the key features of the new framework is the integration of Non-Financial Misconduct (NFM) rules, which will come into effect from September 2026. These rules, aligned with the Senior Managers and Certification Regime (SM&CR), aim to tackle issues such as bullying, harassment, and violence within private fund managers. This move will elevate governance standards, potentially improving workplace culture and reputational resilience.
The FCA is also simplifying the existing regulatory framework by transferring MiFID organizational requirements into its Handbook and seeking feedback to tailor conduct and organizational rules more appropriately for UK asset managers. This includes simplifying reporting requirements related to funds’ assessments of value, aiming to reduce regulatory costs and complexity for asset managers while boosting competitiveness.
Another significant development is the introduction of a new prospectus regime to ease capital raising, encouraging growth and competitiveness for asset managers and investment firms. There is also a move to open gateways for overseas funds to be promoted in the UK, enhancing investor choice and market competition.
UK private fund managers will remain subject to an equivalent regime to the EU's Alternative Investment Fund Managers Directive (AIFMD), ensuring strict compliance for capital raising, risk monitoring, transparency, disclosures, and remuneration. This regulatory alignment supports investor protection and systemic risk monitoring in alternative investment sectors like hedge funds and private equity.
The new framework offers enhanced governance and compliance, reduced compliance burden, increased competitiveness, and greater market access for fund managers. The introduction of non-financial misconduct rules and integration under SM&CR improves governance and accountability, which can enhance investor confidence and firm reputation. Simplified rules and reporting requirements lower operational costs and barriers to entry for new fund managers, fostering innovation and growth within the sector.
The new prospectus regime and relaxed promotion rules for overseas funds widen market opportunities, potentially increasing assets under management and competitive positioning globally. Maintaining parity with AIFMD encourages cross-border business, attracting international investors and maintaining the UK’s attractiveness as a fund domicile.
However, it is important to note that the new UK regulatory framework does not address the changes in the EU's AIFMD regime that will come into force in April 2026, resulting in a divergence in the regulation of private funds between the UK and the EU.
The FCA's reform drive prioritizes three areas: changing rules for private investment funds, updating the UK's retail funds regime, and supporting technological innovation. The FCA is proposing to retain the core framework of the AIFMD while making it more proportionate. The proposals for capital rules simplification aim to make these rules easier to understand and consolidate the rules on what qualifies as regulatory capital.
The UK financial regulator has also proposed a simplification of UK capital rules for investment firms. These proposals are designed to avoid unnecessary complexity and support the government's growth "mission". The FCA has put out a call for input on these proposals and has published a consultation on regulations for alternative fund managers.
In conclusion, this modernized regulatory framework aims to balance strong investor protections and risk management with support for industry growth and innovation, positioning UK private fund managers for greater long-term success in a competitive global environment. For those navigating these rapidly changing developments, the author's firm's investment management, fund formation, and regulatory experts can provide valuable advice.
- The new regulatory framework in the UK, which includes the integration of Non-Financial Misconduct rules, aims to enhance workplace culture and reputational resilience for private fund managers, thereby improving personal finance management and business operations.
- The simplification of existing regulatory framework and reporting requirements by the FCA could potentially lead to reduced costs and increased competitiveness for asset managers, paving the way for innovation and growth in the investment sector.
- The introduction of a new prospectus regime and relaxed promotion rules for overseas funds could broaden market opportunities, increase assets under management, and strengthen the global competitive positioning of UK private fund managers, thereby fostering wealth-management and attracting technology innovations.
